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17 May 2019

Vodafone makes concessions to ease approval of its Liberty Global deal

Vodafone is pulling out all the stops to sweet-talk regulators into approving its $22bn acquisition of Liberty Global’s German and Central European cable assets, the latest being a proposal to grant Telefónica Deutschland full access to the Unitymedia cable network. With a combined reach of 23.7m homes across a merged Vodafone-Unitymedia footprint, the offer might just slide.

Crucial to Vodafone’s Cable Wholesale Agreement is the promise that Telefónica Deutschland can deliver competitive OTT video and broadband services, by offering DSL lines with download speeds of up to 300 Mbps. But we know Telefónica has a poor presence in OTT video in Germany, while Vodafone is putting a bigger emphasis on the TV business to rival Deutsche Telekom in double and triple play.

While Telefónica’s Spanish business offers the Yomvi OTT service, which it inherited through the acquisition of the Canal+ pay TV business, and its Latin American subscribers have access to Movistar Play OTT services, the mobile giant has typically taken a mobile-first approach to OTT play in Germany.

But just last week, Telefónica Deutschland launched a new live and on-demand TV streaming service in partnership with, simply called o2 TV, targeted not just at mobile devices but at desktops and connected TV sets too, starting at just €4.99 a month. It could be this very launch which prompted Vodafone to make such an offer and emphasize OTT video in doing so.

With a strapline like ‘O2 TV puts an end to cable and satellite’, would inking a deal with Vodafone tarnish Telefónica Deutschland’s reputation? After its previous mobile-first OTT video effort flopped, in partnership with German OTT platform TV Spielfilm, the mobile operator will be eager to try a different route to market – and it doesn’t get much more tempting than 23.7m broadband homes. Although competing with the might of Deutsche Telekom remains a dauting task.

The importance of OTT video to the Cable Wholesale Agreement is such that Vodafone has etched out a specific OTT Commitment within the document, committing to ensure sufficient capacity is made available for OTT TV distribution, while enhancing broadband competition in Germany. The European Commission now intends to undertake market testing of the remedy package, which is expected to conclude during May 2019, before deciding on the transaction by July 2019.

So, Vodafone’s proposal would ultimately restore the German market to three fixed line players, removing the primary premise for blocking the deal. Despite this, we believe the correct course of action would be to approve the deal outside Germany involving Liberty Global assets in the Czech Republic, Hungary and Romania, and refuse it in Germany, but our sense is that if this were going to happen, the European Commission would have acceded to an earlier request from the Bundeskartellamt, and let it carry out the analysis in Germany.

Vodafone CEO Nick Read said, “Our deal with Liberty Global is transformational in many ways. It is a significant step towards a Gigabit society, which will enable consumers and businesses to access the world of content and digital services at high speeds. It also creates a converged national challenger in four important European countries, bringing innovation and greater choice. We are very pleased to announce today our cable wholesale access agreement with Telefónica Deutschland, enabling it to bring faster broadband speeds to their customers and further enhancing infrastructure competition across Germany.”